Interconnect price cuts and mobile call tariffs

Good reporting - a much more balanced article giving some indication of the issues at hand
 
Former Vodacom CEO Alan Knott-Craig recently said that only a fool would argue that interconnect is not too high. “Clearly it's too high,” said Knott-Craig.

Didn't this same fool collude with MTN to raise interconnect fees before CELLC came on the scene?
 
mikef said:
Good reporting - a much more balanced article giving some indication of the issues at hand
Click to expand...

Balance? All I've read in these articles over the past week has come from these squealing CEO's. There are excellent reason for a cut in interconnect rates, but you wouldn't think so reading the news articles this week. The balance has tilted way over in favour of maintaining the industry status quo. Any more of this crap and people will start believing their lies and feeling sorry for these customer fleecing abominations.

Cut the rates already.
 
Something odd here, I'm not an accountant or anything but surely, if you reduce your turnover by 1 billion on product that has a zero or very low profit margin that would overall then improve your reporting position. Maybe an example is in order :

Turn over : 10 billion
Cost : 7 billion
Profit : 3 billion
Profit % for the shareholders report : 42%

Turn over : 9 billion
Cost : 6 billion
Profit : 3 billion
Profit % for shareholders report : 50%

So your position has improved. So basically reducing the interconnect rate is a good thing for the shareholders report!

Just my 2 cents.. ;)
 
warwickw said:
Something odd here, I'm not an accountant or anything but surely, if you reduce your turnover by 1 billion on product that has a zero or very low profit margin that would overall then improve your reporting position. Maybe an example is in order :

Turn over : 10 billion
Cost : 7 billion
Profit : 3 billion
Profit % for the shareholders report : 42%

Turn over : 9 billion
Cost : 6 billion
Profit : 3 billion
Profit % for shareholders report : 50%

So your position has improved. So basically reducing the interconnect rate is a good thing for the shareholders report!

Just my 2 cents.. ;)
Click to expand...

There is a great career awaiting you in Investment Banking. :)
 
Gatecrasher said:
Balance? All I've read in these articles over the past week has come from these squealing CEO's. There are excellent reason for a cut in interconnect rates, but you wouldn't think so reading the news articles this week. The balance has tilted way over in favour of maintaining the industry status quo. Any more of this crap and people will start believing their lies and feeling sorry for these customer fleecing abominations.

Cut the rates already.
Click to expand...

They are the CEO's because they have an understanding of the industry - not saying they may not be biased in favour of their company however in this article the various views all tend to agree that a change in interconnect rated will primarily shift profit from the mobile operators to the landline operators and little direct impact on retail tariffs which is what I have been arguing all along
 
warwickw said:
Something odd here, I'm not an accountant or anything but surely, if you reduce your turnover by 1 billion on product that has a zero or very low profit margin that would overall then improve your reporting position. Maybe an example is in order :

Turn over : 10 billion
Cost : 7 billion
Profit : 3 billion
Profit % for the shareholders report : 42%

Turn over : 9 billion
Cost : 6 billion
Profit : 3 billion
Profit % for shareholders report : 50%

So your position has improved. So basically reducing the interconnect rate is a good thing for the shareholders report!

Just my 2 cents.. ;)
Click to expand...

Only problem is that turnover decreases without a corresponding decrease in costs - edit to clarify (if the interconnect decrease was passed on to the customer in retail rate decreases)
 
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Cells C's report will look like that. Vodacom receives far more in interconnect fees than than the other operators , so its report would look more like :

Turn over : 8.5 billion (Reduced a lot more since its takes the biggest hit in interconnect fees)
Cost : 6.5 billion (Not paying out a lot less interconnect fees)
Profit : 2 billion


Thats why Cell C is beating the interconnect rate drum....

This :
Vodacom CEO Pieter Uys in turn argued that he is in favour of mobile terminate rate reductions, but wants this to be achieved through a well designed process to ensure that the local telecoms industry will not be harmed.
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can be translated as :

Please don't take our profits away....pleeeeeeeeaaassee..... I wont get my fat end year bonus :o
 
Once again these telecom CEOs shows us what a bunch of liars they are. They've had a long enough time to rape SA's economy.
 
I still think that MTN and Vodacom should be forced to lower their termination rates for Cell C, as a penalty for colluding, for the next 10 years so that Cell C can reap the benefit a bit
 
mikef said:
They are the CEO's because they have an understanding of the industry - not saying they may not be biased in favour of their company however in this article the various views all tend to agree that a change in interconnect rated will primarily shift profit from the mobile operators to the landline operators and little direct impact on retail tariffs which is what I have been arguing all along
Click to expand...

And as I've been arguing all along, when the rate is cut and Telkom, Neotel, Cell C, Virgin and VOIP operators pass these savings on their users (and there is not a single reason why they wouldn't - as it makes their services so much more marketable) people will question why they are spending R2 to R3 a minute phoning cell to cell, when it only costs 80c to R1 a minute from a land line? Current cell tariffs will not be even remotely competitive and will fall in line pretty quickly if VC and MTN want to avoid losing a truckload of business.
 
they seem to forget when they increased rates from 25c to 125c to make it difficult for cell c when they entered the market. Now that Telkom wants to enter the market now the gov does something about it. Double standards as usual
 
Gatecrasher said:
Balance? All I've read in these articles over the past week has come from these squealing CEO's. There are excellent reason for a cut in interconnect rates, but you wouldn't think so reading the news articles this week. The balance has tilted way over in favour of maintaining the industry status quo. Any more of this crap and people will start believing their lies and feeling sorry for these customer fleecing abominations.

Cut the rates already.
Click to expand...

he who controls the gravy controls the universe, the flow of gravy must not be stopped :cool:
 
Gatecrasher said:
And as I've been arguing all along, when the rate is cut and Telkom, Neotel, Cell C, Virgin and VOIP operators pass these savings on their users (and there is not a single reason why they wouldn't - as it makes their services so much more marketable) people will question why they are spending R2 to R3 a minute phoning cell to cell, when it only costs 80c to R1 a minute from a land line? Current cell tariffs will not be even remotely competitive and will fall in line pretty quickly if VC and MTN want to avoid losing a truckload of business.
Click to expand...

Please illustrate with reference to an example how CellC will save money if the interconnect rates drop:confused:
 
Gatecrasher said:
And as I've been arguing all along, when the rate is cut and Telkom, Neotel, Cell C, Virgin and VOIP operators pass these savings on their users (and there is not a single reason why they wouldn't - as it makes their services so much more marketable)
Click to expand...

Actually, there are several reasons why they may not.

I think you may be surprised as to who drops retail rates, and by how much. Certainly, this whole exercise would have been a waste of time for Telkom's shareholders if Telkom simply passes all the savings on - it would make a big dent in their revenues (making them a smaller company, basically, but with the same high overheads, number of staff etc, something no listed company should risk), and would not improve their profits. Similarly, Cell C would be foolish to pass on all the savings, since they need the additional profit margin just to keep their heads above water.

The big question is the degree of elasticity in the market - how many more calls will each of these networks get to make up the loss of revenue from lower retail rates? Again, I think you may be surprised which companies could benefit, and which not. A typical LCR provider, for example, wouldn't see any particular cost reduction, so is likely to lose customers. Similarly, the mobile operators live and die by their ARPU (average revenue per user), so, if the elasticity is less than 1 (i.e. they don't make up the missing revenue through the same value in additional calls), then they are going to be very reluctant to reduce prices at all. It guess it's a question of who gets brave soonest.
 
ads said:
..... Similarly, Cell C would be foolish to pass on all the savings, since they need the additional profit margin just to keep their heads above water.
Click to expand...

You are also assuming that a drop in the MTR will result in some kind of saving for CellC. :confused:

CellC is only supporting a drop in the MTR that is also skewed in their favour.
 
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